Under The Hood - January 2021 - Crypto Autopilot

We have a lot to tell you about what's been happening at Osom and within the greater crypto industry. 2021 is shaping up to become a very exciting year!

We're back for a recap of how the year commenced for the Crypto Autopilot. As always, you can find week by week details in the “insights” panel in the app. 📊

And if you're looking for a Valentine’s Day or Chinese New Year gift 🧧 that can grow alongside your relationship, remember that 🎁 you can gift Bitcoin or an Autopilot balance to your loved ones easily.

🛫 January saw the crypto markets somewhat “stabilize” on a high plateau a little after the crazy fourth quarter of 2020.

1.The total market cap of crypto had gone from around €287 Billion in early October to over €800 Billion in early January, oscillating around that number for most of the month to finally close January 27.2% higher than where it started.

2.Altcoins performed well overall as the total market cap of crypto excluding Bitcoin grew by 63.53% in January. And Bitcoin’s dominance (share of the total value of all crypto), which was at its highest for the past 12 months on January 4, 2021 has come back down to the levels of mid-Q4 2020, as altcoins caught up.

3.Bitcoin, which started the month at around €23,911.68, hit its highest point at €33,526.13 on January 10, then spent the month moving within that band. Ending the month at €27,309.78, or 14.21% higher than where it started.

📈 The Crypto Autopilot Performance

The ₿ - denominated performance for the month was 7.07%; meaning that our diversification strategy beat a strategy of holding Bitcoin alone for the month. When it comes to the 💶 -denominated performance, it was 21.24%.

Crypto Autopilot Performance vs Bitcoin BTC

Since we started 494 days ago, that’s a 237% increase in performance in Euros, -8.22% in BTC.

🙋 Your questions about the Autopilot, answered!

With more and more people using the Autopilot over the past two months, we have seen some questions resurface most frequently, so we thought we’d take the time to address them here.

1.How diversified is the Autopilot?

We talked about the Herfindahl Index (a concentration index) back in December, which indicated that it is 5x less concentrated than simply holding Bitcoin alone. It’s an “OK” index, but a somewhat simplistic one that doesn’t account for how correlated those assets are to each other in terms of prices.

Therefore this month, we wanted to talk about another way of looking at it, with the “Diversification Ratio” (D-ratio). This expresses the weighted average volatility of the portfolio instruments as a multiple of portfolio volatility. The higher the ratio, the more risk is reduced by combining assets that behave differently rather than concentrating in assets which more or less behave the same way, price-wise. And by picking up negative correlations between asset prices to reduce portfolio risk.

The result is the following: Bitcoin has a D-ratio of 1, as the portfolio risk will be equal to the risk of the single instrument BTC (duh! 😉 ). An index strategy like Crypto20 has an average D-ratio of 1.2 over 2020, meaning limited diversification was offered since there is a concentration in the largest assets that tend to behave very similarly.

A broad universe like S&P 500 has an average D ratio of 1.7 over 2020 by using market cap weights. The Crypto Autopilot had an average of D-ratio of 2.2, a substantial decrease in risk, by diversifying more than an Indexing Strategy. In the short run (single-year 2020), especially when one asset is really on a tear, the benefits of spreading out might not be apparent immediately but in the longer term (multi-year), there is a proven link between higher D-ratio and outperformance since the portfolio picks up codependence as well. That’s why we keep saying that a good holding horizon for the Autopilot is 2.5 to 5 years.

yearly average Diversification Ratio for 2020 of the Crypto Autopilot is 2.2

2.Why do I never see Ethereum in the Insights panel of the Autopilot? Is it not in the addressable universe?

It is in the addressable universe, and it has been chosen a few times, but as explained above, the correlation between the larger assets is much larger than the ones between smaller assets (and the ones between large and small assets). From a portfolio construction perspective, it does not make sense to include 2 instruments that exhibit highly-correlated return characteristics, which comes down to buying more of the same (albeit with a different name). In other words, risk cannot be reduced by combining these two assets.

ETH and BTC have moved concurrently showing similar performances, with a correlation in returns of more than 64%, while the average correlation of altcoins with BTC is approximately 35%.

The aim of portfolio construction is to achieve a better risk-adjusted performance by combining assets rather than concentration in the best-performing assets. Thus, in-line with the explanation of D-ratio above, it follows that there is nothing to be exploited in the joint behaviour of the two largest assets from a portfolio construction perspective.

3.When is the best time to deposit in the Autopilot?

We cannot provide you with financial advice. You should evaluate yourself or with your financial advisor what is best for you.

What we have seen is that many professionals cite “Dollar Cost Averaging” as a sensible, risk-reducing way of entering any market. It means putting in a little over time as opposed to a lot at one time💰. This made sense to us and we wanted to make it easy to implement with the Crypto Autopilot for those who think it’s a right move for them. We created a unique Autopilot deposit ID for each customer which you can use if you want to make deposits into the Autopilot directly via a bank transfer.

You can find it in the App by going to Crypto Autopilot > Add Funds > Add Euros > Bank Transfer. There, you will find a deposit code with the following format “ATP00000XXXXXX”.

If you use that as the communication field in your bank transfer, your Euros will be converted automatically into BTC and put into the Autopilot upon arrival. There is nothing for you to do manually! It also means that you can set up a recurring payment (min. 50€) with that communication to deposit into the Autopilot regularly without ever needing to open the app!💸

If you want to make a deposit into the Autopilot regularly, this is more convenient than having to deposit on the OSOM Euro wallet (for which the format is “OSM00000XXXXXX” ) and then manually depositing into the Autopilot once the money has arrived. However, if you don’t want to use the Autopilot and just want to buy BTC or ETH on the exchange, the OSOM Euro wallet is still the way to go.

4.What are the holdings in the Autopilot exactly?

There are currently 14 coins held in an addressable universe of 43.

Autopilot Holdings as of end of January 2021: BTC        37.4%,BNB        13.3%,DCR        11.8%,THETA        8.7%,AAVE        7.9%,NEO        5.7%,XEM        5.3%,FIL        2.0%,EGLD        2.0%,WAVES        1.8%,ZIL        1.6%,MKR        1.2%,HBAR        0.9%,REP        0.5%

We understand that transparency is of utmost importance and we are going to make the Autopilot holdings much more visible in the Insights panel.

Crypto Happenings in January

1.WallStreetBets people, after their successful “short-squeeze” with Gamestop, seem to have been focusing a fair bit of their attention around crypto in general and Dogecoin & XRP in particular. Neither are in the Crypto Autopilot’s addressable universe

2.The change in Musk's Twitter bio sent the price of Bitcoin skyrocketing. He also said, “it’s a good thing”. We think so too.

3.Polkadot overtook XRP to become the fourth-largest cryptocurrency. There was also quite a bit of development around the protocol. It looks like we have a strong contender for general-purpose decentralized computing. And we are seeing quite a few projects aiming to take the best of Ethereum and make it available on Polkadot. This is just one very recent example. Things should get interesting.

4.Though it got a little buried under the heap of other news as we turned to a new year, our CEO, Anton, wrote a good piece in TheNextWeb and TechTalks on why it makes sense to be wary of our human side when investing.

What does February have in store for us?

It doesn’t look like the pandemic is going anywhere before the spring and it is a little hard to nail down where things will fall in the short term. It looks like rising public spending, stimulus checks and the printing of fiat by central banks is good for crypto; and since it looks to be continuing, so should the momentum of the past 6 months.

For OSOM, we continue to look at adding more ways for you to enjoy the benefits of crypto. One way would be to make DeFi usable despite the horrendous transaction fees. If you are interested in lending stablecoins through smart contracts and would like to be part of our group of early testers, let us know at [email protected]

And don’t forget, if you are looking for a unique socially-distanced gift in February 🧧 💖, you can gift Bitcoin or an Autopilot balance to your loved ones very easily.

As always, thank you for your trust. Feel free to let us know if you have any ideas for how we can improve - or anything else!

This is not investment advice, nor a solicitation. Crypto markets possess a high level of risk, including volatility and regulatory uncertainty. Past performance does not constitute a guarantee of future results in any way. You are solely responsible for doing your own financial, legal, tax, or investment research before taking any actions.